Well this was an obvious thing I had to watch, since I’m currently teaching a class on the two fellows. Anyway, if you want to spend 50 minutes (or even just 30 minutes, really, since that alone will give you a good taste) learning what the big fuss is about Keynesian economics, I think Krugman does a good job in this lecture celebrating the 75th anniversary of the General Theory. Some quick remarks:
(1) Is Krugman usually this jumpy/nervous in public talks? I don’t remember him being like this when I saw him at NYU’s Stern School, back in the early 2000s talking about Japan.
(2) Around the 9:00 mark, Krugman quite explicitly says that the General Theory is about people not spending enough. As obvious as that might seem to some people, I point it out because I’m pretty sure our resident Keynes-defender has complained that this is a strawman erected by Rush Limbaugh.
(3) In the same area, Krugman puts up a slide from the General Theory, going over just the stuff I was asking about last week. Great economists think alike. (BTW Daniel Kuehn went way beyond the call of duty to try to help me out.)
(4) Somewhere in the 10:00 – 25:00 range (sorry can’t be more specific), Krugman quotes from Barro from a WSJ op ed, where Barro said (paraphrasing) “Keynes thought wages could be too high, but monetary policy can address this problem.” Krugman said something like, “This is just completely failing to understand the central Keynesian point.” But how is it? Isn’t that Krugman’s own solution for Japan (and us)? What I mean is, is Krugman here making a complicated argument involving the relative likelihood of pushing a deficit through versus getting the public to believe the Fed will allow future price inflation? Or is he saying something much more basic than that? Because I didn’t see what the problem was with the quote from Barro, whereas I did understand why Krugman would start choking on the (alleged) stupidity of John Cochrane’s quote a few minutes later in the lecture.
(5) Somewhere near the 30:00 mark, Krugman says that the policy debate over China has it all wrong. Rather than having us over a barrel, the Chinese have an unloaded water pistol pointed at our heads. In fact, if the Chinese stopped buying our Treasury debt, Krugman says we should send them a thank you card.
Now this part confused me too. Krugman had just gotten through the demonstration that equilibrium, full-employment interest rates right now are negative. OK fine, and so if the Chinese didn’t buy as much of our debt, that wouldn’t make US interest rates go up, since they would still be stuck at the zero bound. But how would it help us? Is Krugman assuming that if the Chinese don’t buy our Treasury debt, instead they would use the money to start infrastructure projects? I.e., if the Chinese just started buying debt issued from Canada, that wouldn’t do anything to help, right? (I mean this from his point of view, of course.)